Brazil: With IMF loans to state bankruptcy

Beyond Tango effect and presidential elections – despite liberal economic policy threatens to close them Brazil’s debt trap.

Deja-Vu in Brazil: With two pithy sentences succeeded US Treasury Secretary Paul O’Neill to push the real to a new record low. On Monday, the US dollar rose as steep as in January 1999, no longer – by 5.5 percent to 3.18 reais.
Also, the country risk, an indicator of the distrust of investors reached new peaks. Brazilian government bonds are therefore interesting to 22 percent higher than their US counterparts.

As in June, O’Neill had said on Sunday in a television interview against a further loan to Brazil, Argentina, and Uruguay. The three Mercosur countries would once pursue sound economic policies and “ensure” that grants “not simply in Swiss accounts” landed, O’Neill said in his usual dramatic fashion.

President Fernando Henrique Cardoso responded unusually sharp and called on US Ambassador Donna Hrinak, “explain” the statements to O’Neill. Should this clarification not turn out satisfactorily, he saw next week “unable to receive the finance minister.” A spokeswoman O’Neill in Washington assured then dutifully, Brazil was pursuing a “correct policy”, you hope for the “continued success”.

Since the beginning of the devaluation of the real against the dollar is 38 percent. With each price drop, the private and the public debt burden and the difficulties to use it to grow. Therefore, the Cardoso government decided for the third time to apply for a loan from the International Monetary Fund (IMF) – yesterday flew a high-level government delegation to Washington.

If the IMF gives the go-ahead quickly, as it suggested the Deputy Director Anne Krueger recently, the Cardoso government may hope for an honorable retirement without bankruptcy. 1998 Brazil was granted a credit line of 41.5 billion dollars in 2001, the commitments amounted to 15.7 billion.

New Favorite: Ciro Gomes

While still making many analysts besides an ominous tango effect the presidential election in October responsible for since May continuing nervousness on Brazil’s financial markets. In surveys, namely is the pale government candidate Jose Serra, who represents a continuation of the previous orthodox liberal economic policies, far back.
But leftist candidate Luiz Inacio “Lula” da Silva gets rid of its image as the allm├Ąchlich specter of markets. On the one hand, he presented a very moderate government program last week. Secondly, his favorite role is melting away. New survey and media darling is the smart Ciro Gomes, who while projecting itself as an oppositionist and seeks more independence from the IMF, but is content hardly distinguishable from Serra. In 1994, when Cardoso launched his first presidential campaign, Gomes had inherited him as finance minister. In runoff polls, Gomes is consistently before Lula.

The crisis is real

More serious is all that the months-long speculation has left its mark in the “real” economy: more and more companies are facing difficulties in rescheduling. Loans due to high-interest rates have long been a luxury, are becoming unaffordable even for the export business. May the bitter-bought with budget cuts surpluses also rise regularly – the debt service surpasses still apparent. Even so, all candidates, including internal Serra distance themselves from neo-liberal recipes.